India Must Seize The Small Opportunities In A Trump Presidency
The unbelievable and dreaded thing has happened. It is being hailed as a symptom of the crisis in Western democracy. Trump is now the president of the United States of America. All analysts who had previously written about the dangers of a Trump presidency didn’t actually believe this would come to fruition. It was a casual painting of a doomsday scenario, while hoping and believing that Clinton would somehow win the show. It was not to be.
The initial reaction was more predictable than the long-term effects. Financial markets across the world tumbled immediately after the announcement, though they recovered later. Sensex fell by over 500 points when the results pointed towards a Trump victory. The Mexican peso fell sharply on fears that Trump would carry out his campaign promises against Mexico.
The volatility is likely to continue for some time. The dollar will depreciate against the major currencies of the world and may continue to remain weak, which will have implications across the world. In the long run though, things are more unpredictable.
What can India and the rest of the world expect from President Trump?
A Free Rein?
First, the tiniest bit of good news. Trump the President is necessarily different from Trump the challenger. Even Trump must behave in accordance with the post he occupies. In an uncharacteristically subdued victory speech, he said he would be president for all Americans. However, many of his untenable or unreasonable policies now have a far higher chance of being passed due to the Republican Party’s majority in the Senate and the House. Not since 1928 have Republicans controlled the Senate, the House, a majority of Governors, the mandate to pick the Supreme Court Justice and the Presidency. This allows Trump’s ideas to seep through the depths of American democracy – which is something to be wary of.
The centre piece of Trump’s presidential campaign has been immigration and there’s no reason to expect that it will take a back seat once he takes office in January 2017. Amidst all his rhetoric and incoherent claims, he has probably been most explicit on his plans to combat immigration – both legal and illegal. Though he would love to deport 11 million unauthorised immigrants from the U.S., it would be practically impossible to do so. However, the policies he wants to put in place are enough to strike fear in the hearts of illegal immigrants and make even the process of legal migration much harder.
This is his stated position on his website: “Immediately terminate President Obama’s two illegal executive amnesties. All immigration laws will be enforced – we will triple the number of ICE agents. Anyone who enters the U.S. illegally is subject to deportation.” Trump ideally wants U.S. companies to check the legal status of their employees electronically and fire them if they are not legal migrants.
Bad News For India
It would be foolish to believe that Trump is a friend of Indians and wouldn’t target them.
India is the fastest growing source of illegal immigrants in the U.S. (the number rose 43 percent between 2009 and 2014) and ranks fourth in the list of the largest source of illegal immigrants after Mexico, El Salvador and Guatemala.
There are currently around half a million illegal Indian immigrants in the U.S. and Trump wants the host country to accept the people his administration would deport. This can have a severe negative impact on India.
It is not just illegal immigrants that Trump is targeting. He would like to make legal immigration into the country more difficult as well. His administration could make it tougher for American companies to get visas for immigrant workers by increasing the prevailing wage rate that H1-B workers must be paid, thereby making it unattractive for American companies to hire them. He could mandate that all employers give outright preference to American workers over their foreign counterparts. Though it has not been fleshed out, Trump had previously alluded to putting a moratorium on green cards for foreign workers. He has also called for “extreme vetting” of anyone requesting entry to the U.S.
These measures have severe ramifications for India.
Remittances from the U.S. is an important source of foreign exchange for India. The U.S. is currently second only to Saudi Arabia as the biggest source of foreign inward remittances. Remittances also make up to 4 percent of our GDP. This will be dented if migration from India to the U.S. reduces significantly.
Any such immigration policy from the Trump administration will negatively impact India’s software industry, which routinely deputes their employees to work for their clients in the US, on a H1-B visa. This is an important source of revenue for Indian software companies. With tougher immigration norms or higher fees, the industry will definitely feel the pinch.
India’s BPO industry could also bear the brunt of Trump’s strong anti-outsourcing stance. He has proposed a 15 percent tax on American companies outsourcing their work.
Global Trade Set To Weaken
Another worrying aspect of a Trump Presidency is the possible weakening of global trade. He has proposed, at various times, differing tariff structures on imports coming into America. For instance, he has proposed a 35 percent tax on automobile imports from Mexico. He rues the fact that the U.S. manufacturing sector has been in steady decline and that the country is heavily reliant on China and other countries for imports. In fact, this was one of his strong campaign highlights during the electoral race. His electorate would expect him to carry through some of his promises in this regard.
Higher tariffs on imports and exports will start a trade war and global trade will be worse-off because of it. Retaliatory protectionism has always ended in lowering the welfare of all parties concerned.
The U.S. is an extremely important partner in trade for India. Indian exports to the U.S. stood at $44.8 billion in 2015 while imports from the U.S. was close to $21.4 billion. A tariff of the kind Trump proposes will end up hurting India’s export-based domestic industries.
International Institutions
Many of Trump’s policies on trade openly violate the WTO principles that the U.S. has agreed upon. This could end up encouraging other members to flout the already weak WTO rules and regulations, which could end up in a full-blown trade war.
It would be interesting to see how Trump interacts with other international institutions such as the World Bank and the International Monetary Fund. The U.S. has traditionally been the biggest donor to these international financial institutions. It would take minimal extrapolation to imagine what Trump’s views would be on donating to these institutions when the U.S. faces a recession or a fiscal crunch. In the same vein, one can expect a lowering of foreign aid that the U.S. currently disperses.
How Should India Engage With Trump?
Given all of these potential downsides, it is extremely important for India to engage with Trump in a manner that minimises losses from the policies outlined above and perhaps even to find areas of gains.
This will be a true test of Modi’s foreign policy. The government of the world’s fastest growing economy must have devised a strategy to mitigate global risks to its economy and Trump’s Presidency is definitely among the top global risks.
It is crucial to remember that India has not been the target of any of Trump’s outrage (except in the field of outsourcing) and he has even claimed to be a friend of India. There’s a good reason for this. While the U.S. suffers a considerable trade deficit with China and is genuinely worried about imports from Mexico, India isn’t perceived as a threat. The U.S,’ trade deficit with India is nowhere close to the deficit with China ($23 billion as against $367 billion in 2015). Given the fact that Trump will most likely flout WTO rules and try to apply selective trade barriers, India should seize any opportunity to strike good trade deals with the U.S.
India should also expect Trump to significantly shake up the status quo in established global institutions and should take advantage of such a situation. Maybe Trump will disrupt the G20/G7, the NSG, the UNSC, climate change agreements, etc. The onus would be on New Delhi to bargain for a more favourable position in these international institutions.
Given the results, it would be up to the Modi government to be at the right place at the right time to eke out some advantages from the strange phenomenon that is Donald Trump.
Anupam Manur is a Policy Analyst at the Takshashila Institution, an independent, non-partisan think tank and school of public policy. He tweets by @anupammanur.
The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.